Economic update for the month ending November 30, 2016 and the week ending December 3, 2016
DOW, S&P, and NASDAQ all ended November at record highs – Markets are up 4-6% since the election. Investors have been bullish on prospects of higher corporate profits in the future based on hopes that The Trump Administration will deliver on promises of tax cuts, loosening of regulation, and higher infrastructure spending. The highest gains have been financials which are up 10% on hopes of changes to regulations put in place after the financial system collapse. Coal mining and energy stocks have faired well, also on hopes of less regulation. Defense stocks have risen on hopes of more spending. Construction and construction related companies that would be involved in infrastructure also saw gains. Clean energy stocks have not done as well, perhaps on fears of more competition from oil, gas and coal. Unrelated to the election, oil prices also rose to $49 a barrel from about $46 at the end of the month as OPEC reached an agreement to cut back production. The DOW Jones Industrial Average closed the month at 19,128.58, up over 1,000 points from 18,142.42 on October 31. The S&P 500 closed the month of October at 2,198.31, up from October’s close of 2,126.15. The NASDAQ ended the month at 5,323.68, up from 5,189.13 at the end of October. On December 2, 2016 markets closed the week as follows: DOW 19,170.42, S&P 2,191.95, NASDAQ 5,255.65.
U.S. Treasury Bond yields jump in November – Bond yields shot up after the election on expectations that tax cuts, higher defense spending, and an infrastructure program would increase U.S. deficit spending and debt, which is already out of control. The 10-year U.S. Treasury Bond closed the month yielding 2.37%, up from 1.84% at the end of October. The 30-year Treasury Bond yield was 3.02% on November 30, up from 2.58% at the end of October. Mortgage rates follow bond yields, so we watch treasury bonds closely. Treasury yields closed the week on December 2 with the 10-year yielding 2.40%, and the 30-year yielding 3.08%.
Mortgage rates rise about 1/2% in November – Rates soared following the election, rising almost 1/2 point in 10 days. The Freddie Mac Primary Mortgage Survey released on December 1, 2016 showed that average mortgage rates from lenders surveyed for the most popular mortgage products were as follows: The 30-year fixed rate average was 4.08%, up from 3.47% on the October 27, 2016 survey. The 15-year fixed average rate was 3.34%, up from 2.78% on October 27. The 5/1 ARM average rate was 3.15%, up from 2.84% on October 27.
U.S. employers’ add 178,000 new jobs in November – Unemployment rate drops to 4.6% – The Bureau of Labor Statistics reported that the U.S. economy added 178,000 net new jobs in October and the unemployment rate dropped from 4.9 percent in October to 4.6% in November, its lowest level since August 2007. Wages in November were 2.5% percent higher than last November, according to the report.
California employers add 31,200 new jobs in October – The Employment Development Department reported that California added 31,200 net new jobs in October. The state’s unemployment rate held steady at 5.5%, as more workers entered the workforce. While this is higher than the national rate which was 4.9% in October it’s well below California’s 12.2% unemployment rate at its peak in 2010. Employers in Los Angeles County increased their payrolls by 19,400 employees. The unemployment rate in Los Angeles County actually increased slightly to 5.1% in October from 5% in September as more workers began the job search. Year over year the unemployment rate is down a full percent from 6.1% from October 2015. California runs a few weeks behind. We won’t have November’s figures until around the 20th of December.
U.S. Economy grows at fastest pace in 2 years in the third quarter of 2016 -The Commerce Department reported that the Total economic output of the economy, also known as Gross Domestic Product grew 3.2% in the third quarter. That was faster in the third quarter than previously estimated, and at its fasted pace in two years. This rebound was welcome news after a disappointing first half of the year.
California existing home sales and prices increase in October – The California Association of Realtors released its October home sales report. The number of existing homes sold in October totaled 442,970 on a seasonally adjusted annualized rate. That represented an increase of 4.1% from September and a year over year increase of 8% from last October’s figures. The statewide median price was $513,520, up 1.2% from September and up 7.3% from last October when the median price was $478,780. Inventorycontinues to be near record lows as the unsold inventory index slipped to a 3.4 month supply of homes listed in October from a 3.5 month supply in September.
California pending home sales increase in October – The number of new home contracts on re-sale homes in California increased 1.5% in October from last October’s numbers according to data released by The California Association of Realtors. On a monthly basis pending contracts were down 6.7% from September. The Southern California region fared even better with October sales up 6.8% from last October and up 2.4% from September. The association uses year over year rather then month over comparisons to account for seasonal changes in sales numbers. Typically sales begin to slow heading into the holidays which makes comparing same month figures more accurate. Pending home sales figures are useful because they give an indication of what closed sales figures will be in 30 to 60 days when those sales close escrow.
U.S. existing home sales hit the highest level since February 2007 – The National Association of Realtors reported that sales of existing homes increased 2% in October to an annual rate of 5.6 million homes, the highest level since February 2007. Existing home sales are closed re-sales of single family detached homes, town homes, condominiums, and co-ops. Year over year the number of sales are up 5.9% from last October’s levels. Prices were also up nationwide as the median price this October was 6% higher than October 2015. Pending home sales were also higher nationally increasing 2% year over year.